Investment Arbitration and Human Rights: Odi Et Amo (I Hate and I Love)

Keywords: human rights, investment arbitration, proportionality principle, expropriation, discrimination

Investment law and human rights, if articulated in a millennial’s tongue, is analogous to a love-hate relationship. This post briefly impresses upon this idea in the first part and focuses on the actors involved in the latter part, with the wishful thinking of a fruitful and compatible bond between them in the future.

The Love-Hate Relationship

Investment arbitration (“IA”) is an anomaly in international law,[1] and as the defining characteristics of any anomaly would dictate, it is unpredictable and at times, surprising. Any legal sphere itself not being certain of the contours within which it has to operate is obvious to cloud its relationship with other fields with uncertainty and confusion. IA being one such example exemplifies this behaviour during its liaison with human rights. Instead of Catullus, imagine IA expressing the following for human rights – ‘I hate and yet love. You may wonder how I manage it. I don’t know, but feel it happen, and am in torment.’[2] The torment for IA is the legitimacy crisis that exists in this field.

The interaction of investment law with human rights is not of contemporary origin. The protection of foreign investment preceded the recognition of fundamental human rights at the international level.[3] By the end of the 19th century, substantial state obligations for the protection of alien property became part of customary international law and were later crystallised as minimum standards of protection. As Pierre Dupuy expressed, the historical analysis of modern international law shows that ‘alien chronologically preceded individual’, a fact supported by the structure of the classical Westphalian international legal framework.[4]

The present nuances of this relationship can be studied through the decisions it had produced consequent to its interaction with human rights. One should remember that the extent of inclusion of human rights is dependent upon the wordings of the jurisdiction clause, applicable law, and the particular treaty interpretation approach adopted. Nevertheless, general approaches can be inferred[5] and I am highlighting two – one of affinity and one of denial (of love and resentment!). The affinitive approach is when the tribunal accepts the relevance of human rights and may even treat it as a yardstick for assessment purposes. The tribunal in Phoenix Action v. Czech[6] is one such example. It stated that ICSID protections cannot be extended to investments made in violation of the most fundamental rules of human rights, like investments in pursuance of torture or genocide.

The investment arbitration-human rights discussion generally overlooks one aspect which needs to be highlighted here. It usually is susceptible to a one-sided approach of presuming that the human rights argument is brought up aid for state parties only. However, it plays an equivalent role, if not more, in support of investor protection too. Tribunals have been referring to human rights instruments and related jurisprudence for guidance in investor-related concepts like the standard of fair and equitable treatment (“FET”) (Toto Costruzioni v Lebanon)[7] or expropriation (Lauder v Czech Republic)[8] or for ascertaining nationality (Micula v Romania)[9]. For that matter, the scope of human rights is not merely restricted to states and investors only. In Tulip v Turley[10] the tribunal referred to ECtHR for ascertaining the duties of an arbitrator to give reasons. This hints at human rights being a hush-hush player acting as a supplementary structure to all three major actors involved in the dispute.

Resorting to a millennial’s tone again, considering the penetrative role of human rights, it would be blatant denial to ignore the existing and necessary interrelation of human rights with investment law. A glimpse of it can be seen in the decision of Pezold v Zimbabwe[11] where the tribunal declined to discuss indigenous rights despite the existence of a broadly worded jurisdiction clause and held that BITs does not incorporate the universe of international law into disputes arising under BITs. The tribunal also denied the adoption of the proportionality doctrine. Such straight rejections are problematic especially in cases of regulatory clashes when the State faces BIT obligations and human rights obligations on opposite fronts. One such instance of regulatory dispute and denial is Santa Elena v Costa Rica. The tribunal statement is worth quoting –

“Expropriatory environmental measures – no matter how laudable and beneficial to society as a whole – are, in this respect, similar to any other expropriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains.”[12]

As stated earlier, such investment arbitrations being a source of surprise is evident through such outright denials. Firstly, due to the insensitivity of the tribunal towards human rights and secondly, the rejection to adopt the proportionality principle – a useful method to deal with regulatory disputes. The amazement from this uncertain love-hate relationship returns when the tribunal in Tecmed v. Mexico[13] adopts the same contentious proportionality principle to deal with the conflict. Not stopping there, the peculiarity of the IA regime is such that the proportionality principle was applied in a manner different than it is applied in human rights law from where the concept was borrowed.[14]

Such conflicting decisions lend uncertainty. Since there is no doctrine of precedent (yet!), the tribunal has the option to choose among varied alternatives. It is perplexing that tribunals which can refer to human rights for interpretation purposes can go into straight denial mode in cases of direct clashes, one of the most contentious elements responsible for the present legitimacy crisis. The next section focuses on IA actors and how for the benefit of the regime, the approach could be modified.

Actors

Tribunal

In cases of such regulatory disputes, the tribunal usually has three options –

1) Sole Effect Doctrine (Methanex)[15] – The intention behind regulation does not matter and the state has to pay if the investment is affected.

2) Police Power Doctrine (Santa Elena)[16] – A non-discriminatory regulation for a public purpose, implemented with due process is not deemed expropriatory.

3) Proportionality/Balancing (Tecmed)[17] – To determine whether a regulation is expropriatory, the tribunal must consider whether such measures are proportional to the public interest presumably protected and to the protection legally granted to investments.

The doctrines of sole effect or police power are two extremes ends. Adopting the sole effect doctrine would mean blanket protection for investors while the police power doctrine would afford unfettered power to states. As Aristotle’s Golden Mean, the proportionality principle is one viable alternative to balance competing interests, however, it should be applied in a proper manner and with due deference to state actions.

Parties

The irony also lies in the fact that states who complain of broad investment protections are also the ones who draft vague broadly worded BITs. International law is not at that stage ‘where it can be said that the broad array of international human rights attach direct legal obligations to corporations’.[18] Such obligations are usually governed by non-binding soft law instruments and corporations, if adhere to them, they do so on voluntary basis. Host states are not keen on enforcing the obligations and sometimes even complicit in rights violations[19] despite international human rights treaties requiring states to exercise due diligence to prevent private persons from breaching such rights.[20] One way out is to impose direct human rights obligations upon investors through treaties.[21] In their present form BITs are substantially silent and unclear on human rights issues therefore, a paradigm shift would be needed.[22] Another alternative is that states by legislation and administrative practices control and prosecute non-state actors who violate human rights within their territory and those subject to the state’s jurisdiction.[23]

There have been views that tribunals should also consider the doctrine of clean hands and render investors’ claims inadmissible if investors had violated human rights norms,[24] and that the home State should also intervene in cases of violations of human rights obligations.[25] However, both these approaches, considering the present state of IA, seem far-fetched.

Conclusion

Investor-State dispute settlement (“ISDS”) is dramatically different from anything previously known in the international sphere.[26] However, a misnomer can be seen in the name investment arbitration only. Investment arbitration has the image of being more related to commercial arbitration than international law. Therefore, the approaches are more commercially driven than public driven. However, the consequences involved here are of a much higher stake including crucial policy questions of public health, environment, water, and likewise. Human rights violations, cannot be excluded per se from the jurisdiction of ISDS tribunals, and therefore, if and to the extent that the human rights violation affects the investment, it becomes a dispute in respect of ‘investment’ and should be arbitrable.[27] International law does not recognise any hierarchal superiority between human rights and investment protection treaties and states have to respect both treaty protections and human rights obligations, and therefore, BITs have to be construed in harmony.[28] The tribunal should not hesitate, if it intends to transform the odi et amo relationship to one of perennial compatibility, in referring and relying on human rights, encouraging amicus briefs and construing investor’s legitimate expectation/protections according to international law framework of which both universal basic human rights and investment law are constituent integral parts.

ENDNOTES

[1] Clara Reiner and Christoph Schreuer, ‘Human Rights and International Arbitration’ in Pierre-Marie Dupuy, Francesco Francioni and Ernst-Ulrich Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press 2009).

[2] Odi et amo. Quare id faciam, fortasse requiris.
Nescio, sed fieri sentio et excrucior.
(Catullus 85)

[3] For detail see Pierre-Marie Dupuy, ‘Unification Rather than Fragmentation of International Law? The Case of International Investment Law and Human Rights Law’ in Pierre-Marie Dupuy, Francesco Francioni and Ernst-Ulrich Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press 2009).

[4] ibid.

[5] For a detailed study on approaches see Ursula Kriebaum, ‘Human Rights and International Investment Arbitration’ in Thomas Schultz and Federico Ortino (eds), The Oxford Handbook of International Arbitration (Oxford University Press 2020).

[6] Phoenix Action Ltd v The Czech Republic, Award, ICSID Case No. ARB/06/5 (2009).

[7] Toto Costruzioni Generali S.p.A. v The Republic of Lebanon, Decision on Jurisdiction, ICSID Case No. ARB/07/12 (2009).

[8] Ronald S. Lauder v The Czech Republic, Award, UNCITRAL (2001).

[9] Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania, Decision on Jurisdiction, ICSID Case No. ARB/05/20 (2008).

[10] Tulip Real Estate and Development Netherlands B.V. v Republic of Turkey, Decision on Annulment, ICSID Case No. ARB/11/28 (2015).

[11] Bernhard von Pezold and Others v Republic of Zimbabwe, Procedural Order No. 2, ICSID Case No. ARB/10/15 (2012).

[12] Compañía del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, Case No. ARB/96/1 (2000).

[13] Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2 (2003).

[14] It was used as an additional test to determine expropriation where ECtHR used the proportionality test to examine whether expropriation is justified or violation of the convention. For a critical analysis of the use of the proportionality test in investment arbitration, see Jansen Calamita, ‘The Principle of Proportionality and the Problem of Indeterminacy in International Investment Treaties’ in Andrea Bjorklund (ed), Yearbook of International Investment Law and Policy, 2013–2014 (Oxford University Press, 2015).

[15] Methanex Corporation v United States, Final Award on Jurisdiction and Merits, (2005) 44 ILM 1345.

[16] Compañía del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, Case No. ARB/96/1 (2000).

[17] Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2 (2003).

[18] Interim Report of the Special Representative of the Secretary-General of the United Nations on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, U.N. Doc. E/CN.4/2006/97 (22 February 2006), p. 64.

[19] Patrick Dumberry and Gabrielle Dumas-Aubin, ‘When and How Allegations of Human Rights Violations can be Raised in Investor-State Arbitration’ (2012) 13 The Journal of World Investment & Trade citing Luke E Peterson and Kevin Gray, “International Human Rights in Bilateral Investment Treaties and Investment Treaty Arbitration”, Working Paper for the Swiss Ministry for Foreign Affairs (April 2003).

[20] ibid (citing Janusz Symonides, Human Rights: Concept and Standards (Routledge 2000))

[21] Interim Report (n 18) p. 65.

[22] Dumberry (n 19).

[23] Robert McCorquodale and Penelope Simons, ‘Responsibility Beyond Borders: State Responsibility for Extraterritorial Violations by Corporations of International Human Rights Law’ (2007) 70(4) Modern Law Review.

[24] Dumberry (n 19).

[25] Peterson and Gray (n 19).

[26] Jan Paulsson, ‘Arbitration Without Privity’, (1995) 10 ICSID REV.

[27] Reiner and Schreuer (n 1).

[28] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, Award, ICSID Case No. ARB/07/26 (2016).

Chintan Nirala is a doctoral candidate at McGill University under the supervision of Prof Andrea Bjorklund. He would like to acknowledge Clive V Allen Fellowship and McGill L Yves Fortier Chair for their funding. He has completed his masters from King’s College, London.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.